By James Ramage 
 

The dollar fell against the euro and the yen on Wednesday, as disappointing data suggested a slowing U.S. economy that could delay any increase in interest rates.

The euro rose to $1.0762 in late-afternoon trade, increasing 0.3% for the New York session. The dollar fell to Y119.70, now 0.4% lower for the day.

The dollar's slide, which ended a four-day rally, started after payroll processor Automatic Data Processing Inc. and forecasting firm Moody's Analytics reported the U.S. economy added just 189,000 jobs last month, instead of the 225,000 that economists had expected.

In addition, a survey by the Institute for Supply Management showed U.S. manufacturing slowed for a fifth straight month. ISM's manufacturing purchasing managers index declined to 51.5 in March, from 52.9 a month earlier. Economists had predicted a reading of 52.5.

The data dented the narrative of a relentlessly improving U.S. labor market, ahead of Friday's nonfarm payrolls report for March. Furthermore, the numbers add to recent shaky U.S. economic data, which has contributed to investor worries about the Federal Reserve delaying an expected increase in interest rates to September from midyear.

"If you consider the numbers we've seen in the first quarter, they're consistent with a downshift in the economy, which could give the Fed pause in tightening policy," said Joe Manimbo, senior market analyst at Western Union. "That's negative for the dollar. Much is on the line Friday for nonfarm payrolls and the dollar."

Economists expect the U.S. to have created 248,000 jobs in March, the 13th straight month of gains of 200,000 or more jobs. The Fed closely monitors the jobs report and inflation numbers in assessing the U.S. economy's health and in determining when to raise interest rates for the first time in almost nine years.

"It's the first report of the quarter and a key component of the Fed's view of the economy," said Brad Bechtel, managing director at Faros Trading LLC. "A jobs number that arrives in line will give investors more of a sense of certainty for a June Fed rate increase."

Write to James Ramage at james.ramage@wsj.com